MSCI: Hedge Funds Gain Slows to 0.7%

December 11, 2003 (—Preliminary reports show the MSCI Hedge Fund Composite Index posting an increase of only 0.7%, a significant drop from the nearly 2% increase during October.

With 62% of the funds reporting, the Composite’s gain is less than half the1.94% advance posted in October(see    MSCI Composite Gains Nearly 2% in October).   The Composite underperformed the MSCI World Equity Index, which early reporting has up 1.5%.  For the year, the Composite index is at 12.5%, a relatively meager figure in comparison to its World counterpart’s return of 25.3%, according to a MSCI news release.

Although performing worse than the World Sovereign Debt Index, which had a return of 1.7% for the month, the Composite index is still better for the year at 12.5%, while the World Sovereign Debt Index has now returned only 10.6%.

Hedge Fund Indices

Performance was relatively weak for the month, with only two indices reporting returns greater than 1%, and one with negative returns.   The highest November return came from the Specialist Credit Index which reported an increase of 1.3%, with 61% of funds reporting.   Specialist Credit, funds that seek to lend to credit-sensitive issuers, had a year-to-date return of 20.4%.

The other index recording a return over 1% was the Security Selection Index which reported a 1.1% advancement in its funds, with reports from 62% of funds.   Security Selection, those who combine long positions and short sales with the aim of benefiting from their ability in selecting investments while offsetting systematic market risks, have a year-to-date return of 16.5%.

The two indices that posted increases of less than 1% were the Relative Value Index and the Multi-Process Group Index, posting monthly returns of 0.5% and 0.9%, respectively. Relative Value’s year-to-date, for the index focused on spread relationships between pricing components of financial assets or commodities, is now 6.3%, with 59% of funds reporting.   Multi-Process, strategies in which a single investment process does not account for more than 80% of their risk capital, has now returned 15.9% year to date on a 63% reporting rate.

Rounding out the index list was a decrease of 0.4% recorded by the Directional Trading Index, with 64% of funds reporting. Directional Trading, strategies based upon speculating on the direction of market prices of currencies, commodities, equities, and bonds in the futures and cash markets, is up 7.5% year to date. 

The MSCI Hedge Fund Indices are composed of more than 190 indices. More than 1,800 hedge funds have agreed to participate in the database and there are over 1,600 hedge funds currently in the MSCI Hedge Fund Indices and Database.